Internet

Google Books' Latest Foe: The Justice Dept.

As the attorney who spearheaded antitrust battles against Microsoft (MSFT) in the 1990s, Gary Reback shouldn't have been surprised earlier this year when execs at the software giant wouldn't return his calls. "It took me a while to get them to respond," Reback says.

This time around, though, Reback was calling as an ally, not a combatant. He needed Microsoft's help in hemming in what he sees as a new threat to competition. Google (GOOG) had won court approval for a plan that in Reback's view would give it too much sway over the burgeoning digital book business, and Reback wanted Microsoft to join him in trying to get the decision reversed. Microsoft eventually returned the call but still needed convincing that Reback was on its side, Reback says. So Reback offered to take half his normal fee. With that, Microsoft was in.

A few months on, the list of Google foes is growing. Besides Microsoft, Amazon (AMZN) and Yahoo! (YHOO) have also thrown their weight behind the Open Book Alliance, the group formed by Reback and Peter Brantley, director of the Internet Archive, a nonprofit Web-based information depository. And on Sep. 18 the U.S. Justice Dept. joined the chorus of critics, urging the court to shoot down Google's proposal in its current form.

"forward-looking business arrangements"The object of all this ire is the October 2008 attempt by Google to settle a class action filed three years earlier by the Authors Guild and five major book publishers. The plaintiffs alleged that Google's practice of scanning out-of-print library books and making them available online infringed publishers' copyrights. To resolve the lawsuit, Google said it would pay $125 million to copyright holders. As part of the settlement, Google would also set up an online book registry that would let it keep scanning books and give publishers a cut of revenue generated from book sales or ads placed alongside e-books.

"The breadth of the proposed settlement—especially the forward-looking business arrangements it seeks to create—raises significant legal concerns," the Justice Dept. wrote to the New York District Court that on Oct. 7 will decide the fate of Google's proposal. "This court should reject the proposed settlement in its current form and encourage the parties to continue negotiations to modify it so as to comply with [civil law] and the copyright and antitrust laws."

The filing echoes fears voiced by Reback and the other parties the attorney has helped rally to the cause. Amazon, maker of the popular Kindle e-book reader, wants to avoid losing share in the nascent electronic-books market. Microsoft frets that Google will gain an unfair advantage in online advertising by having a massive, searchable library of books associated with its search engine.

The American Society of Journalists & Authors, also a member of the Open Book Alliance, says it wants to prevent large publishers, several of whom side with Google, from gaining too much control over prices. "Google is not building a library, it is building a bookstore," says Siva Vaidhyanathan, associate professor of media studies and law at the University of Virginia. "If this effort succeeds, it will be the dominant outlet for the sale of most of the books of the 20th century," adds Vaidhyanathan, who is finishing work on a book titled The Googlization of Everything: How One Company is Disrupting Culture, Commerce, and Community—And Why We Should Worry.

Is Google the new Microsoft?Having compiled evidence that helped Justice and 20 state attorneys general pursue their landmark antitrust case against Microsoft, Reback has sniffed out what he thinks may be the next big threat to high-tech competition. "I didn't do all that work to have some other company do the same thing the last company did," Reback says.

The attorney took up his latest cause early this year after the publisher of his latest book, Free the Market! Why Only Government Can Keep the Marketplace Competitive, suggested he write an op-ed about the Google book controversy. "The more I looked at it, the more I shook my head in wonderment," Reback says. "Since the breakup of AT&T (T), there's never been a proposal with such broad-ranging economic and social effects."

Reback argues that Google's settlement would grant it and a handful of publishers control over pricing and distribution in the electronic book market for the foreseeable future. The proposed registry would charge around $5.99 for online access to the full text of out-of-print books as well as in-print titles that publishers choose to put on the site. Amazon sells books for the Kindle at $9.99. "If the settlement goes through as Google and the plaintiffs envision, there will be a single source for digital books," Reback says. "And digital books are the only part of the publishing industry that's growing significantly."

Reback also argues that Google intends to use its dominant position in search to get the upper hand in books"a tactic he believes Microsoft tried to use in the previous decade by bundling its Internet Explorer browser with Windows. "If book search is merged into Google.com, how is that different from Microsoft bundling the browser into the operating system?" he asks.

google may be willing make concessionsBook publishers who initially railed against Google's digital book efforts have made peace with the Web company. The Association of American Publishers, which includes Simon & Schuster, Random House, and BusinessWeek.com parent The McGraw-Hill Companies (MHP), supports the settlement in hopes that Google's project will increase online access to books and allow publishers to receive compensation for works that may otherwise collect dust.

Google says the digital-book efforts are just part of its larger stated mission to organize the world's information. "Often when people have a question, they turn to Google to answer it, and we want to make it easier for our users to find the answer to their question from the source, no matter what format it's contained in," says Google spokeswoman Jennie Johnson. "If the settlement is approved by the court, we can help our users by showing them the book that has the answer."

Still, Google may be willing to make some concessions. According to a Sept. 16 Bloomberg report, Google and a group of authors and publishers are in talks with the Justice Dept. to modify some terms of the settlement, though no details have been disclosed. The company would not comment on the matter.

While Reback's old foe Microsoft has bolstered his cause, the latest helping hand has come from an old friend in Washington: Christine Varney, the Justice Dept.'s top antitrust enforcer, worked with Reback during the 1990s when she helped Web browser Netscape Communications make its case against Microsoft. While her agency's recent filing has no binding authority over the decision of Judge Chin, Reback says "it will be very influential."

MacMillan is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.